Question

Which of these statements are true:

1. Negative beta is undefined.
2. Ignoring the magnitudes, Correlation is still more accurate than Covariance.
3. Limit order is safer than Market order.
4. It is possible for an investor to hold a portfolio below Efficient Frontier Line, but it is not an optimal portfolio.
5. Excluding Treasury bonds, total dollar value of bond market is less than stock market.

Answer 1

1). Negative beta is undefined - False. Negative beta implies that the stock moves in the opposite direction from the stock market.

2). Ignoring the magnitudes, Correlation is still more accurate than Covariance. - True.

3). Limit order is safer than Market order - True. Since market orders are executed at whatever favorable price is being offered while a limit order will be executed only within the defined limits.

4). It is possible for an investor to hold a portfolio below Efficient Frontier Line, but it is not an optimal portfolio. - True. All optimal portfolios lie on the efficient frontier line.

5). Excluding Treasury bonds, total dollar value of bond market is less than stock market. - True. Excluding US treasury debt of ~ $14.4 trillion, the bond market has a dollar value of ~ $26.3 trillion (as of 2017) while the dollar value of the stock market is ~ $30 trillion.